The US Budget Deficit Explosion is Getting Very Serious

The federal budget deficit was $342 billion for the just-passed first two months of fiscal year 2020, the Congressional Budget Office estimates, $36 billion more than the deficit recorded during the same period last year.

The largest changes in outlays were as follows (the amounts reflect adjustments to exclude the effects of the timing shifts):

■ Social Security benefits rose by $5 billion (or 6 percent).
■ Medicare spending increased by $3 billion (or 6 percent).
■ Outlays for Medicaid rose by $3 billion (or 9 percent).

These are not the kinds of outlays that are easy to stop. They are politically charged.

The deficit is now on track to surpass $1 trillion in the 2020 fiscal year, which will end September 30, 2020.

CBO is calling the deficit path "unsustainable" and this doesn't take into consideration that we will eventually experience a spike in interest rates.

A perfect storm is developing.

The Federal Reserve, behind all its technical maneuvers, has only one real ability: The ability to print money. That's how they will help get the Treasury out of the jam in the short-term, print money to buy Treasury securities that will finance the debt.

But the price to be paid for this is an eventual major acceleration in price inflation and then what are the Fed and the Treasury going to do?

-RW